Firm brings microfinancial aid to U.S. students

Microfinance

Published 4:00 am, Monday, July 18, 2011

Photo: James Patrick Cooper

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Alex is a brainy middle income person who doesn't qualify for financial aid. He's exhausted his loans, and has a financial gap that the Lumni money helps cover. He is one of only 19 students so far who have gotten this kind of funding. less

Alex is a brainy middle income person who doesn't qualify for financial aid. He's exhausted his loans, and has a financial gap that the Lumni money helps cover. He is one of only 19 students so far who have ... more

Photo: James Patrick Cooper

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Carla Hernandez laughs with high school students who came to the workshop at the University of Pacific in Stockton Calif., to become better prepared for college on July 15, 2011.

Carla Hernandez laughs with high school students who came to the workshop at the University of Pacific in Stockton Calif., to become better prepared for college on July 15, 2011.

Photo: Audrey Whitmeyer-Weathers, The Chronicle

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Rena Stone looks across the campus of Fisk University in Nashville Tenn. on Friday, July 15, 2011. Stone, an Oakland native, moved to Nashville two years ago to pursue her education and hopes to 'maybe' do her graduate study at NYU. less

Rena Stone looks across the campus of Fisk University in Nashville Tenn. on Friday, July 15, 2011. Stone, an Oakland native, moved to Nashville two years ago to pursue her education and hopes to 'maybe' do her ... more

Photo: Alex Washburn, Special To The Chronicle

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Alex is a brainy middle income person who doesn't qualify for financial aid. He's exhausted his loans, and has a financial gap that the Lumni money helps cover. He is one of only 19 students so far who have gotten this kind of funding. less

Alex is a brainy middle income person who doesn't qualify for financial aid. He's exhausted his loans, and has a financial gap that the Lumni money helps cover. He is one of only 19 students so far who have ... more

Photo: James Patrick Cooper, Special To The Chronicle

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The microfinance company Lumni is helping 19 students pay for college including Carla Hernandez in Stockton Calif., on July 15, 2011.

The microfinance company Lumni is helping 19 students pay for college including Carla Hernandez in Stockton Calif., on July 15, 2011.

Photo: Audrey Whitmeyer-Weathers, The Chronicle

Firm brings microfinancial aid to U.S. students

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An innovative method of helping students pay for college in Latin America has landed in the United States - and 15 California students serve as its willing guinea pigs.

"For me, it's absolutely wonderful," said 20-year-old Alex Jasiulek of Oakland, who has been president of his class for two years at Columbia University in New York.

He's one of thousands of students across the country who have taken out as many loans as they are eligible for, who may get financial aid and who work part time - yet still fall short of covering their tuition.

For Jasiulek, the gap has been about $5,000 a year. A company called Lumni USA pays that bill.

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Founded in Chile in 2002 by finance wizards Felipe Vergara and Miguel Palacios, the for-profit company has taken the notion of microfinancing - small but critical infusions of money that have been wildly successful in helping poor people start businesses, particularly in regions such as India or Africa - and applied it to helping students pay for college. The company, funded primarily with venture capital, opened its U.S. office in San Francisco three years ago. Its name combines "lumen," for light, and "alumni."

Nothing like typical lender

Lumni USA financed its first students in 2009: Jasiulek and Rena Stone, also from Oakland.

Now there are 15: Nine are the first in their family to attend college, 11 are low income, 10 are black or Latino, and 10 are from the Bay Area. They attend schools from San Francisco State to New York University.

In exchange for financial help, Jasiulek agreed to pay Lumni a percentage of his eventual salary for a period of time. In his case, it's 3.71 percent for 10 years.

If he earns $100,000, he'll owe $3,710 a year for a total of $37,100. If he earns $40,000, he'll owe $1,484 a year, or $14,840.

Payments are made during any 120 months of employment. If a graduate must skip a payment, there is no penalty. The company doesn't allow faster repayment and discourages lump-sum payments with a hefty surcharge.

"For a middle-class person like myself, it's a good program," said Jasiulek, who expects to go into politics. "In my particular circumstance, I think Lumni will be cheaper than a loan. And the only way I'd be able to get to Columbia is with this Lumni money."

The company calls it "student financing" through a "human capital contract."

That may be a fancy name for a loan. But the company works nothing like a typical lender.

"Students are committing a percentage of their income after graduation for a set period of time," Leviner said. "And they're done after that, regardless of how little or much they've paid."

That doesn't mean that students can pay as little as they want. The contract is valid regardless of changes in a student's income. Say Lumni gives $10,000 a year to a premed student who eventually will pay 6 percent of his salary for 10 years. And then the student becomes a teacher instead of a highly paid doctor. Lumni might get $20,000 instead of $90,000 for its $40,000 investment.

Risk and reward

Yet Denhart doubts that the system will catch on in the United States, where student loans are more available than in Latin America. Here, high earners might not want to commit part of their salary, he said, and low earners might not provide sufficient return to the company.

Like a bank, Lumni won't give money to everyone. But it doesn't use a credit score or a co-signer as a criterion for lending, as a bank does.

Lumni uses a scoring system to measure each student's initiative and potential. The company examines grades, SATs and even the graduation rate of the college they hope to attend.

Then the process gets personal.

"We interview every student," Leviner said. "We look for evidence of resilience, drive, ability to set long-term goals - and for the value of the education they're getting."

"Wow," she said. "Wow! That's totally revolutionary. Recognizing where students are and where they want to go - that could have some promise."

With programs in Chile, Colombia, Mexico and the United States, Lumni has financed about 2,000 students and raised about $17 million from some 100 investors. Among students now at work, 97 percent are making timely payments, said Elliot Peterson, operations coordinator for Lumni USA.

Success stories

Stone, one of the first two U.S. beneficiaries, is entering her junior year at Fisk, a historically black university in Nashville. A poet, performance artist and aspiring author, Stone grew up with both parents on drugs. Her mother is now sober.

Raised by a cousin with five other children, Stone graduated in 2009 from Wilson College Prep in Oakland, where each classroom was devoted to a different university. The day she received her Fisk acceptance letter - an envelope her cousin had used as scratch paper until Stone realized what it was - she raced it to her favorite teacher, a Yale graduate who hung a copy on her wall.

Then it was time to pay.

"I have loans," Stone said, as well as grants, scholarships and financial aid. Still it wasn't enough for Fisk, a private school that costs about $27,000 a year, including room and board.

Lumni has given her $6,000 a year so far. Stone, 20, will pay 4.98 percent of her eventual salary over 120 months. It's a higher rate than, say, Jasiulek's, because Stone listed her major as business, while Jasiulek's was politics. Now Stone is majoring in English and could renegotiate.

Though it's not clear how much Stone may earn, her ability to move from a troubled background to a college classroom suggests she was a good bet.

"Rena has a way of making things happen, even when all of the odds are against her," says a note in her Lumni folder.

The company also saw potential in Carla Hernandez of East Palo Alto, who e-mailed Lumni repeatedly after representatives showed up at her high school last year. Now she's at Wheelock College in Massachusetts, with $6,000 so far from Lumni.

"It's really helpful," said Hernandez, who hopes to be a parole officer or social worker. She'll pay 2.26 percent over 120 months. If she earns $60,000, that will be just over $1,300 a year.

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